Dissolutons

DISSOLUTION OF PARTNERSHIP FIRM

DISTINCTION The action of distinguishing

Dissolution of

partnership

Dissolution of

firm

Extinction of relationship between partners.

Complete closure of business

THE PARTNERSHIP ACT

Few of the partners but not all

All the partners of the firm.

Dissolution of Partnership

The dissolution of partnership between FEW OF THE PARTNERS but not all is called dissolution of partnership.

Dissolution of firm

The dissolution of partnership between ALL THE PARTNERS of a firm is called dissolution of firm.

EXAMPLE

A B C

A B C A B C

DISSOLUTION OF FIRM

VOLUNTARY[SEC 40 TO 48]

BY AGREEMEN

T

COMPULSAR

Y DISSOLUTIO

N

HAPPENING

OF CONTINGENCIES

BY NOTICE

BY COURT[SEC 44]

DISSOLUTION OF FIRM

VOLUNTARY[SEC 40 TO 48]

BY COURT[SEC 44]

INSANITY

PERMANENT INCAPACITY

MISSCONDUCT

PERSISTENT

BREACH OF AGREEMENT

TRANSFER OF INTRES

T

CONTINUOUS LOSSESS

JUST

AND

EQUITBL

E

VOLUNTARY

{Sec 40}BY AGREEMENT The dissolution occurs with the consent of all the partners.

The firm is compulsory dissolved when all the partners will have no other option.

{Sec 41}

COMPULSARY DISSOLUTION

{Sec 42}

HAPPENING OF CONTINGENCIES

•Fixed term expiry•Completion of the adventure•Death of partner.•Insolvency of partner

{Sec 42}

BY NOTICE The partner ship is at will the firm may be dissolved any time by any partner giving notice to other partners.

DISSOLUTION BY COURT ---{sec 44}

INSANITY

PERMANENT INCAPACITY

MISSCONDUCT

PERSISTENT BREACH OF

AGREEMENT

TRANSFER OF INTREST

CONTINUOUS LOSSESS

JUST AND EQUITBLE

When a partner becomes of unsound mind;

When partner becomes permanently incapable of performing his duties as a partner;

When a partner becomes of unsound mind;

When a partner commits willful or persistent breach of agreement;

When the partner sell or transfers his intrest.

When a business cannot be carried on expect at loss;

In addition to the above, the court may order dissolution on any other ground.

CONSEQUENCES OF DISSOLUTION

RIGHTS OF A PARTNER AFTER DISSOLUTION:[S46]

•Right to have business wound up after dissolution.[S46]•Right to have firm’s debts settled out of firm’s property:[S49]•Rights to personal profits earned after dissolution:[S50]•Right to return of premium or premature dissolution:[S51]•Right to restrain from use of firm name or firm property: [S53]

LIABILITY OF PARTNER AFTER DISSOLUTION

1. Liability for acts of partners done after dissolution:[S45]2.Continuing authorities of partner for purpose of winding up[S47]•Winding up the affairs of the firm.•Completing the transactions already begun but unfinished at the time of dissolution.

SETTLEMENT OF ACCOUNTS UPON DISSOLUTION

SEC 48 OF PARTNERSHIP ACT

PAYMENT OF LOSSESlosses include deficiency of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by partnership individually in proportion.

APPLICATION OF ASSETSThe assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, comes in application of assets.

•Pay debt to third party.•In paying to each partner rateably what is due to him as capital.•The residue shall be divided is a proportion they use to share profit.

FIRM DEBTS Vs PRIVATE DEBTS

Sec 49 say if debt due from the firm and debt due to from the partner then firm property first use to pay firm due and surplus use to pay partner due as per share.

LOSS ARISING FROM INSOLVENCY OF A PARTNER

SALE OF GOODWILL AFTER DISSOLUION

if partner become insolvent & unable to contribute then the rule laid down in the landmark case of GARNER V/S MURRAY will be applicable in the absence of a contract to contrary.a)-the loss on realisation of asset shall be borne by all the partners in their profit sharing ratio.b)-the loss on account of deficiency of capital of the insolvent partner shall be borne by the solvent partner in the ratio of their capital standing before dissolution.

Although goodwill is intangible asset, it can be sold like another asset sec 55 tells us about sale of goodwill.a)- settling of the account after dissolution goodwill shall be subject to contract b/w the partner or included asset and it can be sold either separately or with property of the firm.b)-Right of buyer and seller of goodwill.

PUBLIC NOTICE

According to Sec. 72 of The Indian Partnership Act 1932, a public notice is given :

• When a partner retires from a firm.• When a firm is dissolved.• When a minor, admitted to benefits of firm, attains

majority.

• Notice to the Registrar of Firms under Section 63.• Publication in Official Gazette.• Publication in vernacular newspaper circulating in

the district where the firm has its principal place of business.

• In case of an unregistered firm notice to the Registrar of Firms is not necessary.

Formalities for public notice in case of a registered firm

END

BANARSI DAS Vs SETH KASHIRM

A CASE ON

PEOPLE INVOLVED

PLAINTFF: Kundanlal

Defendants:

• Banarsi Das •Kanshi Ram •Kundan Lal •Munnalal•Devi Chand•Sheo Prasad

•They formed a Joint Hindu Family till 1936•The property owned by this family is a sugar mill at Bijnor in Uttar Pradesh known as “Sheo Prasad Banarsi Das Sugar Mills.”.•After disruption of the family, the brothers decided to carry on the business of the sugar mill as partners instead of members of HUF. •The partnership was to be at will and the brothers were to share the profit and losses equally.•One brother would be appointed the managing partner, and the agreement provided that for subsequent years the person unanimously nominated by the brothers was to be the managing partner and till such an unanimous decision was made, the person functioning as managing partner in the previous year must continue.

CASE OUTLINE

TIME LINE

•September 1, 1936: Commencing of the agreement. (Banarsi Das was made managing partner)•1941-44: Kundanlal was the managing partner•May 13, 1944: Sheo Prasad (defendant no- 5) instituted a suit in the court of the Subordinate Judge, First Class, Lahore, for dissolution of partnership and rendition of accounts against Kundanlal and joined the other brothers as defendants to the suit. •August 3. 1944: The court’s order was dated at this and Mr. P.C. Mahajan, Pleader, as receiver.•April 5, 1945: From this date on, High Court appointed Kanshiram as Reciever in place of Mahajan•(1944- 45: Kundanlal and his son was asked to work the mills as the agents of the U.P Government for these two years.) •1945-46: lease was renewed by the government of this period.•August 28, 1956: Parties, except Devi Chand, made an application to the court at Lahore praying that the receiver be ordered to execute a lease in favour of Banarsidas for a period of five years. •September 1946: Banarsidas obtained the possession of the mill.

FURTHER DEVELOPMENT

•Sheo Prasad’s application to the court for distribution of Rs 81,00,000/- •This amount was lying with the Receiver.•The suggestion made thus was that the amount which was due to Kundanlal and Banarsidas should be withheld as they needed to render accounts. •The amount was however distributed amongst all brothers and Devichand acknowledged the receipt on 14th November 1946.

On October 11, 1947: Lahore suit was dismissed for default as the parties had to migrate to India as a result of the partition of the country. November 8th 1947: Sheo Prasad instituted a suit before the court of Civil Judge, Bijnor against his brothers for a permanent injunction restraining Banarsidas from acting as Receiver. March 3, 1948: Suit was dismissed.July 16, 1948: Sheo Prasad transfers 1/6th of his shares to Banarsidas.July 30, 1949: Banarsidas filed his written statement. December 18, 1950: application regarding the appointment of Receiver was dismissed.February 19, 1951: Banarsidas made an application to thecourt for directing Kanshi Ram to give a lease of the mill to him for a period of five years.April 26, 1951: Mr. Mathur was appointed Receiver by the court.July 1951: Mr Mathur granted a lease for five years to Kundanlal on certain terms, which wouldbe settled by the court.It may be appropriate to mention here that issues in the suit instituted by Kundanlal were framed on December 7, 1951, and one of the important issues was whether the lease dated September 12, 1946, granted to Banarsidas was void ab initio or was voidable and in either case what was its effect.

TIMELINE CONTINUED

CONTENTIONS OF BANARSIDAS

Under the Partnership Act, the partners are entitled to have the business of the partnership wound up even though a suit for accounts is barred under Art. 106 of the Limitation Act.Kanshi Ram having been appointed a Receiver by the Court stood in a fiduciary relationship to the other partners and the assets, which were in his possession, must be deemed to have been held by him for the benefit of all the partners. Therefore, independently of any other consideration, he was bound to render accounts.The question of limitation was not raised in the plaint or the grounds of appeal before the High Court and as it is a mixed question of fact and law, it should not have been made the foundation of the decision of the High Court.The Court was wrong in holding that limitation for the suit commenced on May 13, 1944.

RATIO DECIDENDI

Even assuming, however, that the term "notice" in the provision is wide enough to include within it a plaint filed in a suit for dissolution of partnership, the sub-section itself provides that the firm will be deemed to be dissolved as from the date of communication of the notice.It would follow, therefore, that a partnership would be deemed to be dissolved when the summons accompanied by a copy of the plaint is served on the defendant, where there is only one defendant, and on all defendants, when there are several defendants.Since a partnership will be deemed to be dissolved only from one date, the date of dissolution would have to be regarded to be the one on which the last summons was served.”

DECISON

The Supreme Court held that the High Court's decision must be set aside and that of the trial court restored. It should be mentioned that some of the parties including the appellant Banarsidas and the plaintiff-respondent, Kundanlal as well as the defendant respondent Kanshi Ram were agreeable to certain variations in the decree. But as there were other parties besides them to whom these variations are not acceptable, it is necessary to decide the appeals on merits. For the aforesaid reasons, the appeals of Banarsidas and Kundanlal were allowed and the decree of the trial court was restored.